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Saturday, February 29, 2020

Don't Let Covid-19 Stop You From Making Smart Money Decisions!

On my January, 31st post, What's A Value Investor To Do In This Market?, I sort of wished the stock market would catch Covid-19, more commonly called, Coronavirus.  Apparently the saying, "be careful what you wish for..." is not just a saying.  Wow...did the fear fever spread last week!  I was all cash at the time, fortuitously, and waited until mid-week to start small positions in a few beat down stocks.  I grabbed some Carnival Cruise (CCL), Delta Airline (DAL), Ford (F) and even Vanguard's Total Stock Market ETF, (VTI).  I scooped up some more shares of these same stocks as the market rout ensued Friday morning.

The market lost 10.8% of its gains since the hysteria began.  This brings me to a question?  Are we at a "Bull-trap"?  Sure, the market can continue to drop next week.  But maybe it rallies and reaches "The Lower-high" before starting a downward trend again as concerns over a global recession mount.  I still have plenty of firepower (cash) on hand to keep dollar-cost-averaging in the event of a continued sell-off.  My advice for people is to not go all in...ever!  If you're going to buy some of your favorite companies next week, do yourself a favor and start small.  Rome don't need conquering in one day.

This is a great reminder that life goes on.  Yes, we may all be a little scared about the inevitable spread of Covid-19.  After all, it's a novel virus that has the potential to kill.  There's plenty of uncertainty wound up in this Black Swan event to keep us all biting our finger nails.  Damaging your nails is one thing, stopping your investing or personal finance mind from working because of fear of the unknown is a whole lot stupider!  Look people, it is what it is.  Yes, you or I may catch Covid-19 one day, but until then we have to live out our lives as normal.  Case in point:

Last week, I was listening to CNBC on my way to work.  I heard that Mortgage rates had plummeted to near their all-time lows.  Why?  Covid-19 of course!  Some guy was being interviewed.  He was the CEO of some REIT (Real-Estate Investment Trust) or a Real Estate based company that worked with Chinese investors.  He said some of his rich Chinese clients couldn't close their deals in the U.S. because they're essentially stuck in China.  Trump isn't letting any Chinese land on U.S. soil.  So this CEO lost some deals and money.  He claimed the real estate sector would take a hit.  Well, maybe it will.  But it hasn't quite yet.

From Barrons magazine 3-2-20 edition

That was all good information, but what's it got to do with you and me, right?  If you own a home and haven't refinanced, you're an idiot!  I had tried to refinance last year, but my home didn't have enough equity at the time to get the 80% LTV just right.  Meaning, I didn't have at least 20% in equity.  But then real estate in San Diego county kept rising.  After hearing the news that rates had dropped yet again, I went online to Bankrate.com and investigated.  I decided to fill out their online form and shop for a low-rate.  My home's value has risen enough, I reasoned.  Let me try to refinance again, I said to myself.  People, you gotta be persistent!

So my mortgage rate is currently 5.125%.  The rates Bankrate.com spit out from its partners were in the mid 3's.  Ally Bank came out on top.  Followed by Blue Spot Home Loans.  I clicked on Ally Bank's link and was taken to its online application.  I got to say, Ally Bank's initial application process is awesome.  As an owner of several rental properties, I hate having to populate the section on assets because it takes so damn long.  But Ally has a feature where you can enter the home's address, and other private items and aspects about the loans (like how much you pay each month), pop out automatically.  Within 30 minutes I had a full disclosure of a potential loan for me.  The rate I got was 3.37%, but the cash to close was disappointing: over $7,500.

That's one hold-up for many people looking to refinance.  They don't want to pay any cash to close.  I didn't either!  Luckily, I was being phone bombed by companies galore, all looking for my business.  I don't like getting everyone and their mom calling me to offer their services as possible lenders or brokers, etc.  But that's the price we all have to pay for entering our info online.  Luckily for me, one person from Blue Spot Home Loans texted me a nice message.  I let him know I was still shopping for the best rate and terms.  He asked me to give him a chance to match or do better.

Part of your closing costs are things you can't control.  For example, lenders have to pay a portion or all of your impounds up front.  Things like your property taxes and home owner insurance.  That's usually what drives your closing costs higher.  And of course these lenders want to make some money of their own for their services.  This is the negotiable stuff.  You can ask for more in "lender credit."  I worked this angle with the person at Ally Bank.  But the closing costs were still going to be upwards of $6K.

I went back to the person that was helping me at Blue Spot Home Loans.  I sent him a screen shot of the Ally Bank declaration.  He countered with..."I can do the 3.375%.  My fees would be $1954.  Lender fees: $315, Appraisal $500, Title and Tax: $1139.  I would be giving you $870 in lender credit so only $1084 total fees."  Okay, he got me interested.  Fast forwarding to the part where we are today, I'm going to end-up paying a grand total of $0 to close.  How?  Get this...

They took my word for the value of my home.  Meaning, they waived the appraisal process.  This gave me enough equity to use for better loan terms.  Part of the equity is going to be used to pay my portion of the closing costs (taxes, insurance, etc.).  I don't have to spend any money on an appraisal!  He was also able to give me $1500 in lender credit.  Summing it all up, my rate is 3.37%, my new payment will be $2,895 per month ($-237 from the one I had), and the best part, since I didn't do a cash-out refinance, I get to keep all my home's remaining equity.

I don't know if it's just my experience, but it seems like lenders are willing to move a bunch of obstacles out of the way to ensure they make your deal happen.  So if you couldn't refinance before, try, try, again!  Especially now with Covid-19 making rates fall again.  If you're thinking of buying your first home, then now is a great time.  Rates are low.  Inventories remain low too, but you can't have your cake and eat it too.  You can wait to see how Covid-19 might play out.  But you might miss an opportunity of a lifetime if you do!  And I'm out!!!


Friday, February 14, 2020

Why Kobe Bryant's Death Was A Wake Up Call

Kobe Bryant's premature death was hard for many people, including me.  I'm not a Lakers' fan, but while attending UC Santa Barbara in the late '90s, I got to see the Lakers scrimmage at the Thunderdome (the Gaucho's event center).  This was early in Kobe's career, but already he was a superstar.  Living in Santa Barbara also enabled me to catch many Lakers games when they played my team, the Golden State Warriors.  Despite my support of the "Dubs," I was a Kobe fan.

Image result for kobe bryant

As we know, Kobe Bryant didn't die alone.  His daughter, Gianna Bryant, as well as other people, tragically met their end when the helicopter they were flying in crashed.  It's been a few weeks now since the tragedy.  The Kobe Bryant Memorial Services are next week at the Staples Center.  The last I read, it appears the event will be huge.  Kobe was loved.

There's an inherent flaw in all of personal finance.  I've read countless articles on topics galore relating to PF.  The authors of countless blog posts and books (myself included) all assume one thing: that you will make it to retirement.  Those who are proponents and practitioners of the FIRE (Financial Independence Retire Early) have one thing going for them, early retirement.  In other words, by saving half their income or more, and investing mostly in safe vehicles like mutual funds with great track records (so they preserve capital), these individuals want out of the workforce by their 30s or 40s.  Done!  About the only thing I personally like about the FIRE movement is being young at retirement.

But no one is safe from the Grimm Reaper.  This is why Kobe's death was a wake up call to all of us.  Sure, young people die all the time.  Some from natural causes, and others tragically.  Some of these deaths make the news.  We may lament and feel awful for the surviving family members.  But the impact Kobe made in life magnified 100 times over or more, his premature death.  Kobe was not only a Hall of Fame NBA player, he was a successful businessman with quite the fortune.  Kobe had all of his affairs in order.  No doubt.  His family won't have to deal with extended family or quarrels.  But for every Kobe, there are 60 people who die every day without a Will or a Living Trust.

Image result for estate planning

According to a 2017 AARP survey, 6 in 10 Americans haven't done a will yet.  I'm one of them!  My wife, Jessica, and I were at our annual tax appointment with our EA yesterday.  We asked him about his Living Trust service.  It's going to cost us $1,500 to set up a Living Trust, and $175 for each rental property transfer.  Ouch!  Oh well.  Whereas a will goes into effect upon your death, a trust goes into effect as soon as it's created.  Another key difference between a will and a trust is that a trust avoids the courtroom, saving everyone time and money.  You have to figure out what works best for you.  A living trust works best for my family.

Okay, so you may be doing great saving for retirement.  That's not the norm in the U.S. as many people struggle just to make ends meet.  But I bet you haven't considered your death or potentially failing health, as much as you should.  Do you have a health care power of attorney?  Do you have term life insurance so your loved ones don't struggle without the loss of your income?  Do you have a trust?  You don't?  Then what the heck are you waiting for?

Do you think Kobe thought he was going to die at 41?  Obviously, no!  My wife and I go out on date nights, leaving the kids with a babysitter.  What if we get in a car accident and die together?  The what?  We feel incredibly fortunate to have several rental properties as assets and our residence here in coastal CA to leave to our two kids, but we feel like idiots for not having a living trust yet.  We left the EA's office with the forms in hand and are going to sit down this Presidents Day weekend to start working on them.  Perhaps it's time you talk estate planning with your significant other too.  Do it for Kobe!  Mamba Mentality. 

Friday, January 31, 2020

What's A Value Investor To Do In This Market?

I'm sick of this market!  And my attitude is so garbage right now that some days I wish the market would get Coronavirus.  But it seems that the bull is immune to everything.  Back in late 2018, I thought for sure the end of the bull had arrived, only to see Trump convince the Fed to lower the Fed Funds rate (several times).  But the Fed went beyond the call of duty, doing Quantitative Easing (Q.E.).  The latter has been kept hush, hush, to the public at large, but if you want to know what truly turned the market around in early 2019...it was Q.E.!!!

And now we are here in 2020.  When I say, "we," I'm referring to value investors.  Hey guys, remember when you could find lots of stocks with growth rates higher than their P/E's?  Yeah...neither do I.  In the strict sense of the word, value implies finding shares who have future growth rates higher than their current P/E multiples.  This was something that could be done with ease at times, but these days, your stock screener will turn up dead crickets when you search with those parameters.

Don't take me wrong, there are plenty of stocks with P/E's between 10 and 20 out there to choose from.  But having a low P/E doesn't make a stock a pure value play.  You might have to turn to mid-cap or dare I say, small-cap stocks to find value.  There are some value stocks in beaten down sectors like Financials, but then you're going Contrarian because rates don't seem to be budging up any time soon.  So long as Trump can scream at Fed Chief Powell with a bombardment of critical Tweets, the Fed will not hike.  This brings me to another point, is Trump a systematic or unsystematic risk?  I can't quite tell.  Or you can try the energy sector.  But gasoline is so 20th century.

4,000 plus days and counting.  Some people are just beginning to march along the bull as if they were in Spain.  Are they nuts?  No!  It's the usual FOMO (Fear Of Missing Out) effect.  It happens at the tail end of each bull market.  I sold the stocks I owned in my taxable Brokerage account yesterday, realizing a $300 loss for the year.  But it's only January!  I know.  I'm a value investor and I'm at a loss for ideas.  I still own stock in my 403b by way of an Index Funds: Vanguard's Total Stock Market, allocated at 65%.  So if the bull should keep strolling down the street, I'll still be making money.

It may not be the best time to jump into the stock market for the very first time.  In fact, it's one of the worst times.  But, it's the perfect time to invest in your financial education!  My latest book, Stock Market Investing for Minority Teens & Friends is out and live at Amazon!  It's a beginner's guide at heart, written for teens and young adults, but the information is perfect for all beginner's.  You can now read the front matter and the first 1.5 chapters using the Look Inside Feature.  Here's a picture of the book with a link to the page.  Thanks for reading!!


Sunday, January 5, 2020

Stock Market Investing for Minority Teens & Friends Book Coming Soon!

I've just finished writing my latest book: Stock Market Investing for Minority Teens & Friends.  My target audience are all low-socioeconomic and underprivileged teens, especially ethnic minorities.  However, the book's other audience includes the allies of my target audience, or basically, any non-ethnic, i.e., white teen who hangs out with my target audience at school, etc.  Basically, any lower or working class teen ages 14-19.

This is the image that will grace the front cover.

If you're wondering why I chose this audience...well, there are zero books on beginning stock market investing that cater to the one audience that really needs a book on this topic!  The wealth/income inequality gap is huge.  I don't need to justify a book like the one I've written.  Clearly, more Americans should be investing in stocks, but especially Americans of color.  If you're upset or think this is some sort of race baiting, get over it! Every other book written on stock market investing is for a white consumer.

If you don't mind references to school, video gaming, the occasional use of the word, "white person," or "white man," and you want to learn about stock market investing, then my book will break down the toughest topics and distill them into pure understanding.  After all, as a teacher, I'm accustomed to helping students learn incredibly complicated science content, e.g., Newton's Laws and Einstein's general relativity.  So I can definitely help a beginner make sense of stocks!

The book is currently being reviewed by some critical friends of mine.  After I get back their editing tips, etc., I will fine tune the document and publish the book at Amazon.  It will be between 95 to 100 pages total.  Every chapter will have section exercises so that you can practice the skills of stock evaluation.

If you're a parent or guardian of a teen, and you know nothing about the market, please, please, look out for this book.  You have absolutely no idea how much of a disservice it is to teens of color to lack even the basics about stock market investing.  Let me tell you that you may as well as be setting up your child for financial failure if they never learn to invest in stocks.  So be on alert!  Peace.  

Saturday, August 10, 2019

Pocket Points App Lets Students Earn Rewards And Save Money

As a former high school assistant principal, and current teacher, I can tell you that cell phones on school campuses are a pain in the butt!  It doesn't matter what type of school it is, private, charter, public, small or big, most students will struggle staying off their phone in class.  If students check their phones during a lesson, for whatever reason, they're not really "present" or in the moment learning all they can from their hardworking teacher.

I consider myself a fairly tech friendly teacher, and I allow my students to use their phones ONLY for instructional purposes that I design.  Still, there are teachers who don't allow them out in class at all!  Inevitably, all teachers no matter their style will become a disciplinarian, and lose precious instructional time enforcing cell phone policies and rules.

What about parents?  Well, they too hate having to deal with problems their teen child caused at school.  If cell phone abuse gets out of hand, many parents simply take the phone away, essentially crushing their child's entire world. HA!

Image result for pocket points

PocketPoints.com to the Rescue!

According to legend (the wikipedia page), in 2014 CEO and co-Founder Rob Richardson was sitting at the back of a large class one day while at Chico State University when he noticed several of his fellow students missing out on the lecture on account of their smartphones.  The light bulb went off in his head, and along with his frat brother, Mitch Gardner, they created an app that incentivizes students to stay off their phone while on campus and more!

Similar to Facebook, Pocket Point's initial audience or app user base were college students across the country.  Rob and Mitch figured students would be more willing to temporarily "lock" their phones if they could earn food rewards, e.g., a free pizza slice from the local restaurant.  So they sought business partnerships with brands and merchants willing to help students stay off their phones.

In turn, these businesses get additional traffic and sales by getting "in front of" (mobile advertising) their generation Z consumer.  But that's not all, Rob and Mitch figured they could also try to get professors to participate.  After all, some professors may spend most of their time talking to the board, but they have eyes in the back of their heads!  Surely they notice all the young eyes glued to screens.  They pitched the app: extra credit points for engagement.  What say ye?  The faculty's answer: No!  Professors ain't got time for that!  

Image result for pocket points

As they say, when one door closes another one opens up.  Rob and Mitch thought about all the high school students in America; they're even more addicted to their phones!  Classroom teachers across the country would probably be way more open to giving extra credit (or other classroom perks) on assignments if it resulted in more students being off their phones.  Rob and Mitch were right.  Think about it...kids respond better to rewards than punishments, and teachers themselves would rather be positive with their students versus negative.      

How does Pocket Points App Work?

Once you download the app on your phone for free, you get to select whether you're a student or teacher.  If you're a student, you then give Pocket Points permission to access your location and motion.  This is how the app determines if a student is in class or driving.  You also have to find your school from a list of schools in your area.  There are probably a few more steps, but this is how far I got with this option not being a student myself.  While the app is on, your phone is on lock mode, and you start earning points you can later redeem on the merchant gift page.  With teachers, you don't earn points.  Rather, you accumulate time off your phone and teachers determine how much of it earns you a particular reward.

The app works differently for teachers.  You start out by "Creating a Class" on the app.  You can set the title of the class, time, and date it is in session.  Then you create a reward.  This is where teachers get to be creative.  The reward doesn't have to always be extra credit.  You can reward your students a myriad number of ways (homework pass, extra bathroom pass for the semester, free McDonald's lunch, etc.).  Advanced settings let you fine tune the reward.  Finally, similar to Google Classroom, an invite code generated by the app lets you add students into any particular class.     

What Are The Reviews So Far?

If you go to the App store on an iPhone and look for the Pocket Points app, you will find that it has a 4.7 out of 5 rating with a total of 13,240 reviews.  That's pretty good.  After reading some of the negative reviews, it seems there was bug in the app at some point and students were upset (left bad reviews) because their points weren't being recognized or fully tallied.  Other glitches included the app not turning on properly at times.  Finally, some reviewers suggested a need for better deals, and more business partnerships.  All of these issues were seemingly handled by the Pocket Points customer service team.

Positive reviews, which were plenty, stated that the app helped just like advertised.  In other words, students were very thankful that they got food or apparel at a discount from local vendors.  Many of them became more aware of their phone addiction.  As a teacher, I was curious to see if any of the reviews were left by educators.  I couldn't find any within the first 30 or so ratings I glanced through.  But an email from the company provided several positive teacher testimonials.  The email also stated that in Spring 2019, "teachers kept students off the phone for 10 million hours of class time."  I find that to be very impressive!  Keep up the good work Pocket Points!

Well, thanks for being here and reading to the end.  For the record, I'm not being paid to write this review.  I read about the company online and thought it would be great to share what it's doing to help my favorite people: students and teachers.  Until next time!    

Tuesday, July 2, 2019

How To Decide Between A 403b or a 457b?

What's up everyone!  I got an interesting email this morning directly from my Kindle eBook: CommonCoreMoney: Financial Literacy for Educators and Other Professionals.  The person, a 16-year veteran teacher of the San Diego Unified School District, wanted help figuring out if he should open a 457b account with Valic, AIG Retirement Services.  Already putting some of his money in a 403b, Steve (not his real name), needed help sizing up the 457b offering as a potential replacement for the 403b.  He wrote:

"Looking into getting a Roth IRA started up and switching out my 403b with a new vendor the district is working on adding by summer's end...I keep reading a 457 is better than a 403b..."

He then included the link to the San Diego Unified 457 highlights PDF for me to look at and give him feedback on.

To keep this part of the story short, I told him that the 457b by Valic has as one of its "pros" the fact that admin fees are waived by his district.  As a "con," I wrote to Steve that I didn't like the limited offerings in terms of the mutual funds available to invest in.  Specifically, I didn't like that there weren't any Vanguard Funds to select from.  Vanguard is the low cost/fee leader in the industry!

However, I couldn't give him a definitive decision as to whether or not he should choose the 457b in favor of the 403b because I didn't have any info on how he is positioned in the 403b.  Here's what all of you need to understand about these very similar retirement investing products.

457b and 403b Similarities:

Both the 457b and 403b are annuity entities that allow you to build a retirement fund outside of your State Teacher (Educator) Retirement pension tax free.  You make set amount (you choose the amount) and direct contributions pre-tax from your gross pay into the annuity.  In doing so, you lower your taxable income, and in many cases, get paid a little more each month than you would normally if you had nothing else to offset your taxable income.  Of course there is a catch!

Just because you have the option of building a secondary retirement fund outside of your state teacher pension, it doesn't mean you should do it using either a 457b or a 403b.  You could open up a Roth IRA and build your second stream of retirement income with after tax contributions.  You can withdraw contributions from your Roth IRA tax free anytime if you follow all the rules!  (Look these up).

The unknown known about 403b/457b investing is the future of your tax situation.  Namely, will you be in a higher tax bracket when you retire or in a lower one?  If you don't intend on buying assets that allow you to deduct and lower your effective tax rates (like rental property) and you will be simply climbing the pay ladder of your career, then you will undoubtedly be in a higher tax bracket when you retire.  This means that once you're allowed to withdraw from your 403b/457b funds in retirement, you will be taxed more on this income than you are today.  Yikes!  So think long and hard about this before you open a tax sheltered account like a 403b/457b.  

In my eBook, I recommend you do like me, and Steve, and put a little away each month using either a 403b/457b AND a Roth IRA.  Annuities have their perks, but they're not the end all, be all.  I have, for example, a 403b, and two Roth IRAs in addition to my CA state teacher's retirement pension.  (I also own several rental properties and this helps tremendously with taxes).  But I'm not maximizing my 403b.  Some money into a 403b/457b is better than no money.

And now I go to the question serving as the title of this post: How to decide between a 403b or a 457b?

Below are the things you should consider listed in order of importance!

1.  Admin fees.  It doesn't matter if it's a 403b or a 457b, can you get enrolled in one that takes the least amount from you each year.  Does your district allow you to shop around for a 403b /457b vendor or are you stuck with only one?  CalSTRS provides members with a webpage that allows them to 403bcompare.  Not all vendors are the same so if your district allows you to choose from more than one, select the one that charges the least admin fees!! I can't stress this enough people.

2.  Mutual Fund fees.  This is where educators and basically most people (401k, 403b, 457b, etc.) get in trouble.  They select mutual funds to invest in within their tax-sheltered retirement account not knowing how much they're paying in mutual fund expenses.  If you have no idea how mutual funds work, you are most likely letting the vendor sway you into mutual funds that are expensive.  These will sap away your investment gains over time.  The least you can do is look up the "Annual Fund Expense Ratio (%)" of the mutual funds you intend on selecting or are already invested in.  Fintech companies like Wealthfront make their money helping people sort this stuff out...for a fee, of course!    

3.  Choice of mutual funds.  You have a pool of choices whether you do a 403b or 457b.  What matters is the choices you have to invest in Index Funds!  Yet another crucial mistake people make when selecting mutual funds to allocate their money into each month in their 403b/457b/401k is too many funds.  They look at it like a menu at a restaurant and pick funds that sound juicy.

"Ooooh, I think I'll have the Growth Small Cap, and the International Large Cap, with the Value Midcap, please.  Oh and can you please add a little Muni Bonds on the side?"

LOL!  As funny as this scenario is, it's happening all the time.  I took a look at my older sister's 401k and she had a ton of overlap. Just paying more fees unnecessarily!

Let me help you make this extremely easy.  Do like Warren Buffett, Jim Cramer, and Jack Bogle have all recommended: invest in index funds.  For example, in my 403b 58% of my current monthly contribution is used to buy shares of Vanguards Total Stock Market Index Fund, Ticker: VTSMX.  Expense ratio: 0.14%!!  The remaining 42% of my contribution is used to buy shares in Vanguard's Total Bond Market Index Fund, Ticker: VBMFX.  Expense ratio: 0.15%.  You're fully exposed to both markets this way so don't let vendors try to trick you into buying other types of mutual funds.  By the way, I don't work for Vanguard and no, they're not paying me any money to recommend their funds...though I wish they were.

The last thing you have to decide on when setting up a 403b/457b are your allocations, i.e., what percentage of your monthly contribution do you want to be used to buy your stock index fund versus your bond index fund.  If you're young, obviously you want a high percent of your money going into the stock fund, and little into the bond fund 90:10, e.g.  Some people use the 100 Rule to decide.  I use it myself actually.  Every year of teaching I adjust my allocations online at the 403b vendor's website.

Okay, I hope this has helped all of you understand the 403b/457b and even 401k investing mystery.  Thanks for being here!

Wednesday, May 1, 2019

Why Getting An LLC For Your Rental Properties Is A Big Mistake!

So last February I refinanced one of my three out-of-state rental properties.  There was a glitch in the underwriting process of my new loan that caused a closing delay.  This meant I didn't get my cash when I was supposed to.  Wells Fargo bank apologized by sending me a $2,500 check.  I kid you not!  They literally sent me what I was due from the refinance in cash-out, PLUS an additional $2,500.  Lucky me, right?

So when talking with my EA at tax time in late March, he recommended I use that money to finally get a trust written up.  Very important by the way!  You don't want to die and not have clearly laid out how your kids get your assets, etc.  Anyway, I agreed.  "But first I'm going to set up an LLC for my rental properties and protect my personal liability," I said to him.

I got right on it.  My EA gave me a recommendation to use his friend (no, he doesn't get a kickback) to have my LLC filed properly with the state of CA.  Now, I've read threads online before that were in favor of setting up LLCs for rental properties, and I've also read threads that mentioned investors not needing them.  Those in the camp of leaving the assets in their name provided a solution: Get an umbrella insurance policy of upwards of 2-3 million coverage.  If something happens at the property, and the tenant sues, the easiest money is the one the insurance can offer.  This was the extent of my understanding.  By the way, I currently have an umbrella policy for my rentals and the coverage is 3 million.

Why did I think I had to change things?  Many of you that own 1-3 rentals may be in the same situation, wondering if setting up an LLC is the right course of action.  I'm in the middle of buying a fourth rental property...loan app is done and I'm waiting on the rehab work to completed.  I thought: Well, I'll just add this latest property to the LLC I have formed...total of four rentals in an LLC seems like a good number.

I paid $750 for Gomez Legacy, LLC to be formed and filed with the state.  I was super excited to get the articles of incorporation in a nice binder, courtesy of the person I hired.  Then it hit me...

Wait a minute.  How do I transfer title from my name to the LLC?  I emailed my guy.  No response.  I went on Google and typed: How to transfer title from personal to an LLC.  A few articles came up.  I thought it was going to be simply a matter of listing the property addresses on some form or something.  Boy was I an idiot.

While in theory keeping rental properties in an LLC to grant you some protection from personal liability is the right call, it's not feasible for most investors.  Most new investors don't outright own their rental properties; they've procured them through conventional financing.  For each of my rentals, including this fourth one I'm about to get, I applied for conventional financing, using my credit, income, evidence of being in good financial standing, and down payment funds.  The bank took a risk on me, not some unknown Limited Liability Corporation!

You see, a new LLC has no credit history and no income.  You didn't apply for your investor loan using the LLC, so why would a bank allow you to transfer title to one?  In fact, most banks won't lend money to an LLC.  There are strict lending regulations already!  The loans we get as investors have investors behind them.  Risk of default is no joke to them!  For my loans, the investors were Freddy Mac.  The notes are held by Chase, Wells Fargo, and Mr. Cooper.  I called them up one by one.

Chase:  Sorry, we don't allow transfer of title per Freddy Mac.

Wells Fargo:  Sorry we don't allow transfer of title under any circumstance.

Mr. Cooper:  We don't do checks for title change.  So long as you keep paying the loan each month, that's your prerogative.  Use a quit claim deed.

Well, my new LLC had been rendered useless.  I'm not spending $800 a year (CA LLC fees) to keep one rental property in an LLC.  Even if the fee is tax deductible!

So, those are the issues you too will face, especially if the loans you got were procured by you, and NOT your LLC.  Transferring title is mostly not allowed by lenders.  Why would they want to risk it?

When Should I Get An LLC?

1.  If you own the property outright.  It's easy to "donate" your property to your LLC.

(That's it!...Sorry to make you think more things were coming)

You can try talking to a real estate attorney before you commit to paying $2-3K, and see if they have a solution on this titleing quagmire.  If you have other ideas, please comment below!

In the meantime, keep the properties in your name.  Keep using the bank's money as often as you can to acquire more properties.  Just make sure you insure the crap out of them.  People are greedy and will settle out of court for a large amount of cash.

I spent $750, but I learned a powerful lesson.  Finally, if you think having an LLC is better for taxes, you should know that for tax purposes an LLC is a pass through entity treated like a person, meaning, it's the same as you filing.

Thanks for reading!